Speech at Official Launch of the Electronic Trading Platform for Bond Market
29 April 2008 |   By : YBhg Dato’ Zarinah Anwar, Chairman, Securities Commission Malaysia
Speech by

YBhg Dato’ Zarinah Anwar,
Chairman, Securities Commission Malaysia

at the

Official Launch of the Electronic Trading Platform for Bond Market
29 April 2008, Bursa Malaysia, Kuala Lumpur

YA Bhg Tun Dzaiddin Haji Abdullah, Chairman, Bursa Malaysia Berhad
YBhg Tan Sri Dr Zeti Akhtar Aziz, Governor, Bank Negara Malaysia

YBhg Dato’ Yusli Mohamed Yusoff, Chief Executive Officer, Bursa Malaysia Berhad

Mr Chang Ho Lee, President, Korea Exchange

Distinguished guests

Ladies and gentlemen.

Good afternoon.

1. It is a great pleasure to be here this afternoon. On behalf of the Securities Commission, I would like to congratulate Bursa Malaysia on the successful launch of the Electronic Trading Platform for the Malaysian bond market.

2. The launch of the ETP underscores our regulatory commitment to enhance the elements of price discovery and transparency, market liquidity and sound market infrastructure for our domestic bond market. These elements, functioning in unison, would support Malaysia’s positioning as a key player in the region.

3. Driven by strong performance of the Malaysian economy over the past ten years, our bond market has matured and experienced remarkable growth in expanding by more than 3½ times its size in 1997 . Malaysia is now recognised as an attractive fund-raising and investment centre in Asia. The level of foreign participation in our corporate bond market has been on an increasing trend. Similarly, foreign investments in the market have increased by more than 4 times, to RM14.3 billion in just the 3 years up to 2007 .

4. These developments are largely facilitated by a robust regulatory framework which encompasses the issuance, trading and intermediation segments. Our approval process is highly transparent and efficient with approvals given in 14 working days and moving forward, the existing deemed approved approach will be extended to all issuers with AAA domestic currency rating or a minimum BBB foreign currency rating.

5. Underlying these developments is the strong emphasis on the establishment of the institutional arrangements for the enhancement of price discovery and transparency in the secondary market. A key result has been the establishment of the bond pricing agency, which provides a reliable and independent set of fair value prices for the bond market and complements prices traded on the OTC market.

6. Our domestic credit rating agencies have also played an important role in creating a strong credit culture that promotes reference pricing for corporate bond issues among our players, and this is set to expand with the potential establishment of a third credit rating agency.

7. The various developmental efforts have clearly yielded positive results. In 2007, t he turnover in the secondary bond market grew by 45.8% to RM777 billion. It was reported by the Asian Development Bank that the turnover ratio for our Government bonds and corporate bonds ranked fifth and second respectively in Asia for the first half of 2007 and for most of 2006. We should not be complacent however; and the establishment of electronic trading platform and centralised price dissemination will hopefully play a significant role in enhancing the turnover.

Ladies and gentlemen

8. As seen in many developed markets, the orderly growth in secondary market activities can be enhanced by the increased use of information technology and communications innovations. The lower cost of transaction, greater liquidity and wider reach of investor base are the obvious benefits we can reap from the widespread use of electronic trading and centralised price dissemination system. In the process, the so-called “liquidity premium” could be reduced for bond issues, thereby lowering the cost of borrowings for issuers.

9. Given the vast benefits of electronic trading and centralised price dissemination, the trading landscape in many bond markets is becoming increasingly electronic. Underscoring this, today, electronic trading captures more than 50% of the bond market’s trading volume in the United States. In Korea, the electronic trading of benchmark bonds spearheaded by the Korean Exchange has commanded more than 40% of the bond trading. The growth is even more spectacular in Europe, with 34% of the total bond trades being executed electronically in 2007 compared to only 22% in 2005. This growth is attributable to the successful MTS system which is a prominent electronic inter-dealer trading system where dealers voluntarily and continuously provide electronic quotations or market-making to maintain liquidity of benchmark issues traded in the system.

10. With the rapid growth of our primary and secondary markets, electronic trading must become the preferred platform for price discovery and bond trading. The ETP with its unique combination of electronic trading and centralised price dissemination, while maintaining the OTC characteristics of our bond market, will offer our bond dealers a more complete and efficient platform for cost competitive trade execution.

11. Our market intermediaries should therefore quickly embrace these changes and tap on the strong potential provided by the ETP. As seen in the success of the MTS system in Europe, the ETP can also facilitate a conducive environment for increased market sophistication, including the introduction of more risk management instruments. The active participation from market players would see this happening sooner and bring our bond market closer to international best practices and standards .

Ladies and Gentlemen

12. The ETP is the result of concerted efforts and close co-operation between many parties committed to the initiative - Bank Negara Malaysia, the Securities Commission, the Capital Market Development Fund which funded the development of the ETP, and Bursa Malaysia. This successful collaboration reinforces our commitment to the development of our bond market, particularly in the area of secondary market liquidity.

13. We also recognise the efforts of the system vendor, the Korea Exchange. We have been assured that the relevant experiences from the Korean electronic trading system have been incorporated into the ETP. Last, but not least, the active participation and constructive feedback from the market intermediaries at the development stage have ensured reliability and functionality of the system.

14. On this note, I wish Bursa Malaysia great success in operating the ETP. May we see the level of bond trades on this platform rise to rival that of the leading markets. Thank you.
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